Sec 40a(3) applicability

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

30 April 2012 Dear Professional experts, please clear my query relating to sec 40A(3)of I.T Act:

An assessee who purchase goods on CREDIT worth Rs 1,20,000/- & make the payment of the same in cash on DIFFERENT DATE below Rs 20,000/-. Does it is hit by the provision of sec 40A(3)?

Please advice....

If possible also give the reference of any case laws/circulars/etc in supportive of answere....

Amol S Joglekar

Amol S Joglekar (Expert)
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30 April 2012 Section 40A(3) is an anti tax-evasion measure. By requiring payments to be made by an account payee instrument, it is possible to verify the genuineness of the transaction thereby mitigating the risk of evasion.Person are splitting a particular high value payment to a person into several cash payments, each below Rs.20,000/-. This splitting is also resorted to for payments made in the course of a single day.Courts have also held that the statutory limit in section 40A(3) applies to payment made to a party at one time and not to the aggregate of the payments made to a party in the course of the day as recorded in the cash book.According to the judicial opinion, the words used are ‘in a sum’, i.e., single sum.Therefore, irrespective of any number of transactions, where the amount does not exceed the prescribed amount in each transaction,the rigours of section 40A(3) will not apply.

Bhaskaran Chackrapani Warrier

Bhaskaran Chackrapani Warrier (Expert)
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30 April 2012 The restrictive provisions of section 40A(3) are not attracted in the given case.

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Querist : Anonymous

Querist : Anonymous (Querist)

30 April 2012
Thanks very much to the experts for the early reply on the query.

But i wish to bring real situation whats happening today that the assessee purchased the goods on CASH & shown in the books of account as on CREDIT.

The amount of which is settled by way of cash on DIFFERENT DATES below Rs 20,000 to avoid sec 40A(3).

there is no where mentioned in the purchase bill that the purchase is on cash/credit.

Query:
What is the auditor responsibility regarding this situation?

What the auditor do in such situation?

Amol S Joglekar

Amol S Joglekar (Expert)
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30 April 2012 Auditor's role is always SIMPLE. ( Simple things are always difficult to execute and implement) Auditor has to REPORT.

C A S.S.Agarwal, M.Com.,LL.B,

C A S.S.Agarwal, M.Com.,LL.B, (Expert)
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07 May 2012 With the amendment now for one person one entry per day is permitted. Previously in a by entering several times the entire amount could have been shown as payment made without attracting the provisions as asked by you